such person is not able to obtain such bond on reasonable terms and conditions without a guarantee under this section; and

(D)

there is a reasonable expectation that such principal will perform the covenants and conditions of the contract with respect to which such bond is required, and the terms and conditions of such bond are reasonable in the light of the risks involved and the extent of the surety’s participation.

(5)

(A)

The Administration shall promptly act upon an application from a surety to participate in the Preferred Surety Bond Guarantee Program, authorized by paragraph (3), in accordance with criteria and procedures established in regulations pursuant to subsection (d).

(B)

The Administration is authorized to reduce the allotment of bond guarantee authority or terminate the participation of a surety in the Preferred Surety Bond Guarantee Program based on the rate of participation of such surety during the 4 most recent fiscal year quarters compared to the median rate of participation by the other sureties in the program.

(b) Indemnification of surety against loss from avoiding breachSubject to the provisions of this section, in connection with the issuance by the Administration of a guarantee to a surety as provided by subsection (a), the Administration may agree to indemnify such surety against a loss sustained by such surety in avoiding or attempting to avoid a breach of the terms of a bond guaranteed by the Administration pursuant to subsection (a): Provided, however—

(1)

prior to making any payment under this subsection, the Administration shall first determine that a breach of the terms of such bond was imminent;

(2)

a surety must obtain approval from the Administration prior to making any payments pursuant to this subsection unless the surety is participating under the authority of subsection (a)(3); and

(3)

no payment by the Administration pursuant to this subsection shall exceed 10 per centum of the contract price unless the Administrator determines that a greater payment should be made as a result of a finding by the Administrator that the surety’s loss sustained in avoiding or attempting to avoid such breach was necessary and reasonable.

In no event shall the Administration pay a surety pursuant to this subsection an amount exceeding the guaranteed share of the bond available to such surety pursuant to subsection (a).

(c) Limitation of liabilityAny guarantee or agreement to indemnify under this section shall obligate the Administration to pay to the surety a sum—

(1)

not to exceed 90 per centum of the loss incurred and paid by a surety authorized to issue bonds subject to the Administration’s guarantee under subsection (a)(3);

(2)

not to exceed 90 per centum of the loss incurred and paid in the case of a surety requiring the Administration’s specific approval for the issuance of such bond, but in no event may the Administration make any duplicate payment pursuant to subsection (b) or any other subsection;

(3) equal to 90 per centum of the loss incurred and paid in the case of a surety requiring the administration’s [1] specific approval for the issuance of a bond, if—

(A)

the total amount of the contract at the time of execution of the bond or bonds is $100,000 or less, or

The Administration may establish and periodically review regulations for participating sureties which shall require such sureties to meet Administration standards for underwriting, claim practices, and loss ratios.

(e) Reimbursement of surety; conditionsPursuant to any such guarantee or agreement, the Administration shall reimburse the surety, as provided in subsection (c) of this section, except that the Administration shall be relieved of liability (in whole or in part within the discretion of the Administration) if—

(1)

the surety obtained such guarantee or agreement, or applied for such reimbursement, by fraud or material misrepresentation,

(2)

the total contract amount at the time of execution of the bond or bonds exceeds $6,500,000,

(3)

the surety has breached a material term or condition of such guarantee agreement, or

(4)

the surety has substantially violated the regulations promulgated by the Administration pursuant to subsection (d).

(f) Procedure for reimbursement

The Administration may, upon such terms and conditions as it may prescribe, adopt a procedure for reimbursing a surety for its paid losses billed each month, based upon prior monthly payments to such surety, with subsequent adjustments after such disbursement.

Each surety participating under the authority of paragraph (3) of subsection (a) shall be audited at least once every three years by examiners selected and approved by the Administration.

(h) Administrative provisions

The Administration shall administer this part on a prudent and economically justifiable basis and establish such fee or fees for small business concerns and premium or premiums for sureties as it deems reasonable and necessary, to be payable at such time and under such conditions as may be determined by the Administration.

(j) Administration not to deny liability based on information provided as part of application

For bonds made or executed with the prior approval of the Administration, the Administration shall not deny liability to a surety based upon material information that was provided as part of the guarantee application.

Subsec. (e). Pub. L. 112–239, § 1695(b)(1), added subsec. (e) and struck out former subsec. (e). Prior to amendment, text read as follows: “Pursuant to any such guarantee or agreement, the Administration shall reimburse the surety, as provided in subsection (c) of this section, except that the Administration shall be relieved of all liability if—

“(1) the surety obtained such guarantee or agreement, or applied for such reimbursement, by fraud or material misrepresentation,

“(2) the total contract amount at the time of execution of the bond or bonds exceeds $2,000,000,

“(3) the surety has breached a material term or condition of such guarantee agreement, or

“(4) the surety has substantially violated the regulations promulgated by the Administration pursuant to subsection (d) of this section.”

2009—Subsec. (a)(1). Pub. L. 111–5, § 508(a), (f), temporarily amended par. (1) by designating existing provisions as subpar. (A), substituting “$5,000,000” for “$2,000,000”, and adding subpar. (B) which read as follows: “The Administrator may guarantee a surety under subparagraph (A) for a total work order or contract amount that does not exceed $10,000,000, if a contracting officer of a Federal agency certifies that such a guarantee is necessary.” See Termination Date of 2009 Amendment note below.

“Pursuant to any such guarantee or agreement, the Administration shall reimburse the surety, as provided in subsection (c) of this section, except that the Administration shall be relieved of liability (in whole or in part within the discretion of the Administration) if—

“(1) the surety obtained such guarantee or agreement, or applied for such reinbursement, by fraud or material misrepresentation,

“(2) the total contract amount at the time of execution of the bond or bonds exceeds $5,000,000,

“(3) the surety has breached a material term or condition of such guarantee agreement, or

“(4) the surety has substantially violated the regulations promulgated by the Administration pursuant to subsection (d).”

See Termination Date of 2009 Amendment note below.

Subsec. (k). Pub. L. 111–5, § 508(b)(2), (f), temporarily added subsec. (k) which read as follows: “For bonds made or executed with the prior approval of the Administration, the Administration shall not deny liability to a surety based upon material information that was provided as part of the guaranty application.” See Termination Date of 2009 Amendment note below.

2004—Subsec. (a)(1). Pub. L. 108–447, § 203(a), substituted “total work order or contract amount at the time of bond execution that does not exceed” for “contract up to”.

Subsec. (b). Pub. L. 100–590, § 203(c), added par. (2), redesignated former par. (2) as (3), struck out former par. (3) which prohibited the making subsequent to two years after Oct. 24, 1978, of new agreements to indemnify, and inserted concluding provision: “In no event shall the Administration pay a surety pursuant to this subsection an amount exceeding the guaranteed share of the bond available to such surety pursuant to subsection (a).”

Subsec. (c). Pub. L. 100–590, § 203(b), amended subsec. (c) generally. Prior to amendment, subsec. (c) read as follows: “Any guarantee or agreement to indemnify under this section shall obligate the Administration to pay to the surety a sum not to exceed (1) in the case of a breach of contract, 90 percent of the loss incurred and paid by the surety as the result of the breach; or (2) in a case in which subsection (b) of this section applies, the amount determined under subsection (b) of this section.”

Subsec. (g). Pub. L. 100–590, § 204, amended subsec. (g) generally. Prior to amendment, subsec. (g) read as follows: “The Administration may at all reasonable times audit in the offices of a participating surety all documents, files, books, records, and other material relevant to the Administration’s guarantee, commitments to guarantee, or agreements to indemnify any surety pursuant to this section.”

1980—Subsec. (c). Pub. L. 96–302 struck out “to or on behalf of the obligee, or to labor and materialmen, in fulfilling the terms of the contract” after “paid by the surety” in cl. (1).

1978—Subsec. (a). Pub. L. 95–507 amended subsec. (a) generally, striking out requirement that the Administration consult with the Secretary of Housing and Urban Development, and inserting authority to vary the terms and conditions of guarantees on the basis of experience with a particular surety and authority to guarantee bonds ancillary and conterminous with the other named bonds.

Subsec. (b). Pub. L. 95–507 substituted provisions relating to indemnification of a surety against loss sustained in attempting to avoid or avoiding breach for provisions relating to the extent of liability of the Administration for loss incurred by a surety.

“The amendments made by this section [enacting section 9310 of Title 31, Money and Finance, and amending this section] shall take effect 1 year after the date of the enactment of this Act [Nov. 25, 2015].”

“Except as otherwise provided in this title, the provisions of this title [amending this section and section 694c of this title and enacting provisions set out as notes under this section], shall become effective upon expiration of one hundred and eighty days after the date of its enactment [Nov. 3, 1988].”

“The Administration shall promulgate final regulations to implement the amendments made by this title [amending this section and section 694c of this title] not later than one hundred and eighty days after the date of the enactment of this Act [Nov. 3, 1988].”

Small Business Access to Surety Bonding Survey

Pub. L. 102–366, title III, subtitle A, Sept. 4, 1992, 106 Stat. 1002–1005, known as the Small Business Access to Surety Bonding Survey Act of 1992, directed Comptroller General to conduct a comprehensive survey of business firms, from a statistically valid sample of business firms developed from the most recent list of construction firms maintained by Dun and Bradstreet Company and using a questionnaire with specifically designated questions, to obtain data on the experiences of such firms, and especially the experiences of small business concerns, in obtaining surety bonds from corporate surety firms and to submit a report to Congress, not later than 18 months after Sept. 4, 1992, which report was to contain a summary of responses of business firms to the survey and a description of any trends found by Comptroller General in such responses, which specific information on responses and trends of small business concerns, small business concerns owned and controlled by women, and small business concerns owned and controlled by socially and economically disadvantaged individuals.